Rating Rationale
August 31, 2021 | Mumbai
SNL Bearings Limited
Ratings reaffirmed at 'CRISIL A / CRISIL A1 '; outlook revised to 'Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.14.1 Crore
Long Term RatingCRISIL A/Stable (Outlook revised from 'Negative' and rating reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the long term bank facilities of SNL Bearings Ltd (SNL) to ‘Stable from Negative while reaffirming the rating at ‘CRISIL A’. The rating on the short term bank facilities has been reaffirmed at ‘CRISIL A1’.

 

The revision in outlook reflects the expected improvement in  performance of SNL and the revision in outlook of its parent, NRB Bearings Ltd (NRB) to 'CRISIL AA-/Stable/CRISIL A1+' from 'CRISIL AA-/Negative/CRISIL A1+' following the expected improvement in business performance driven by  the revival in offtake from the automobile sector from fiscal 2022 onwards.

 

Fiscal 2021 was a challenging year for the automobile sector due to a wider consumption slowdown, COVID-19 led lockdown restrictions and commodity inflation. The company however reported better than expected performance on the back of cost optimization efforts as well as price hikes to pass on increase in input costs. Performance of the company picked up well during second half of fiscal 2021 with improved offtake from automobile sector. As a result, revenues improved by 8% in fiscal 2021 compared to fiscal 2020, and operating margins improved by 820 bps to 25.4%.

 

Demand across automobile segments is expected to register material improvement in fiscal 2022 over fiscal 2021 resulting in a revival in OEM offtake. This along with cost optimisation efforts of SNL will enable it to post material improvement in performance in fiscal 2022.

 

SNL’s financial risk profile, continues to be supported by negligible debt, steady cash accruals, and prudent management of capex and working capital. Liquidity further supported by Rs 16 crore of liquid surplus and unutilised working capital of Rs 5 crore as on March 31, 2021.

 

SNL’s ratings continue to reflect the business, financial, and managerial support that SNL receives from its parent, NRB. These strengths are partially offset by SNL’s modest scale of operations, working capital-intensive operations and vulnerability to cyclicality in automobile demand.

Analytical Approach

The ratings of SNL Bearings Limited factor in support expected from its parent NRB Bearings Limited (NRB). CRISIL Ratings believes that SNL Bearings Ltd will, in case of exigencies, receive support from its parent, considering parent holding of 74.39%, operational, technical and financial support in the form of offtake of about 50% sales.

Key Rating Drivers & Detailed Description

Strengths

  • Strong business, financial, and managerial support from parent: SNL benefits from strong business linkages with its parent, NRB Bearings. Post its acquisition in the year 2000, NRB Bearings has turned around SNL’s performance, making it one of the most profitable bearing companies. SNL, along with NRB Bearings, commands about 70% share of the needle bearing market in India.

 

NRB Bearings has a well-entrenched dealer network which benefits SNL in expanding its reach in the aftermarket segment of auto components. Apart from this, both companies have a common management. CRISIL Ratings expects the business synergies to continue and financial support to be provided in a timely manner by NRB Bearings to SNL, should the need arise.

 

  • Healthy financial risk profile: SNL has no debt on its books, which coupled with strong operating profitability supports its credit profile. With total outside liabilities to tangible networth (TOL/TNW) at 0.14 times and nil gearing expected as on March 31, 2021, SNL bearings has good headroom to raise additional funds for working capital or capital expenditure (capex). While accruals are expected to improve from fiscal 2022 which will ensure that the company will continue to remain debt free over the medium term. Networth on the other hand will gradually increase with positive accretion to reserves.

 

Weaknesses

  • Low scale of operations: Despite healthy revenue growth at a CAGR of around 12% between fiscals 2016 and 2021, revenues stood at moderate level of Rs 37 crore in fiscal 2021.. While SNL operates in niche segment of bearings industry, the segment is small and volatile, which restricts significant ramp up in its scale of operations.

 

  • Working capital-intensive operations: Like most automotive components players, SNL has large working capital requirement, with gross current assets of 175-220 days between fiscals 2017 and 2021. The need to cater to just-in-time delivery of components to OEMs, and the wide product basket of SNL keeps the inventory levels high. The company had inventory of four to six months in the past five years; though it is gradually improving. Furthermore, payment terms from the customers vary from two to three months, impacting receivable levels.

 

  • Vulnerability to cyclical demand in the automotive bearings segment and to pricing pressure from OEMs: High dependence of bearing manufacturers on the automobile sector exposes them to cyclicality in demand. While bearing manufacturers enjoy reasonable pricing flexibility with OEMs, backed by mutual interdependence, and capital and technology intensity of operations, price negotiations happen with a lag, leading to price adjustment delays and impact on profitability in the interim. Furthermore, if there is a prolonged slowdown and decreasing demand for automobiles, it is not always possible for OEMs to completely pass on input price increase to end users. Hence, any significant increase in prices is absorbed jointly by suppliers and OEMs. Additionally, any significant decline in demand will increase overheads, and hence, impact profitability of component suppliers.

Liquidity: Adequate

SNL has no debt obligations. The company is expected to generate about Rs. 6 crore of cash accrual in fiscal 2022. Company also had cash and marketable securities of Rs 16 crore as on March 31, 2021. The cash generated by business, cash surplus and the unutilized fund based bank lines of Rs 5 crore would be sufficient for any capex and additional working capital requirements.

Outlook Stable

CRISIL Ratings believes SNL is expected to witness improvement in business performance driven by the revival in offtake from the automobile sector from fiscal 2022 onwards. Further, the company will continue to benefit from its healthy financial risk profile and support it receives from NRB.

Rating Sensitivity factors

Upward factors

  • Sustained revenue growth of more than 25% and profitability margin >25%
  • Improvement in credit ratings of NRB

 

Downward factors

  • Revenue de-growth of more than 15-20% or fall in operating profitability below 15%
  • Significant debt funded capex leading to gearing more than 0.7 times
  • Downgrade in credit ratings of NRB

About the Company

SNL, formerly known as Shriram Needle Bearing Industries Ltd, was established in 1979 by the Shriram group in Ranchi, Jharkhand. It was promoted as a joint venture of the DCM Shriram group, which has business interests in sugar, alcohol, fine chemicals, and rayon tyre cord, and INA Germany, a leading manufacturer of bearings worldwide. The company got its present name after it was acquired by NRB Bearings in June 2000.

 

SNL manufactures cage-guided drawn cup needle bearings, connecting-rod needle cages for piston pins and crank pins, among other needle bearings. About 40% of its output is sold to NRB Bearings.

About the parent – NRB Bearings Limited

Founded by Late Mr. Trilochan Singh Sahney in 1965, NRB manufactures needle, cylindrical, special ball and taper-roller bearings. It also makes other friction solution components such as planetary shafts, crank pins, and kingpins. The company has four subsidiaries: SNL Bearings Ltd, NRB Bearings (Thailand) Ltd, NRB Bearings Europe GmbH and NRB Bearings USA Inc. The company’s manufacturing facilities are at Thane, Aurangabad, Jalna, and Waluj (all four in Maharashtra); Hyderabad (Telangana) and Pantnagar (Uttarakhand). SNL’s facilities are at Ranchi (Jharkhand); while NRB Thailand’s plant is in Rayong in Thailand. The product engineering centre in Thane and process and advanced materials-based engineering centre at Waluj are government accredited.

 

Ms Harshbeena S Zaveri, daughter of Mr Trilochan Singh Sahney, was appointed the company’s President in January 2001. Currently, she is the Vice Chairman and Managing Director of NRB Bearings and the Chairman of the Board of SNL Bearings.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

36.5

34.1

Profit after tax

Rs crore

6.2

4.2

PAT margins

%

16.6

12.2

Adjusted debt/Adjusted networth

Times

0.00

0.09

Interest coverage

Times

118

371

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs crore)

Complexity level

Rating assigned with outlook

NA

Cash credit*

NA

NA

NA

5.0

NA

CRISIL A/Stable

NA

Cash credit

NA

NA

NA

3.0

NA

CRISIL A/Stable

NA

Bill discounting

NA

NA

NA

1.00

NA

CRISIL A1

NA

Proposed long-term bank loan facility

NA

NA

NA

5.10

NA

CRISIL A/Stable

*Interchangeable with letter of credit to the extent of Rs.1 crore.

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 14.1 CRISIL A1 / CRISIL A/Stable   -- 21-05-20 CRISIL A/Negative / CRISIL A1 30-09-19 CRISIL A1 / CRISIL A/Stable 29-06-18 CRISIL A/Positive / CRISIL A1 CRISIL A1 / CRISIL A/Stable
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bill Discounting 1 CRISIL A1
Cash Credit 3 CRISIL A/Stable
Cash Credit& 5 CRISIL A/Stable
Proposed Long Term Bank Loan Facility 5.1 CRISIL A/Stable
& - Interchangeable with letter of credit to the extent of Rs.1 crore.
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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